Are downloads really killing the music industry? Or is it something else?

The music industry does like to insist that filesharing - aka illegal downloading - is killing the industry: that every one of the millions of music files downloaded each day counts as a "lost" sale, which if only it could somehow have been prevented would put stunning amounts of money into impoverished artists' hands. And, of course, music industry bosses' wallets. But we won't mention that.

At least 7 million people in Britain use illegal downloads, costing the economy billions of pounds and thousands of jobs, according to a report.

Shared content on one network was worth about £12bn a year according to the research commissioned by the Strategic Advisory Board for Intellectual Property.

David Lammy, minister for intellectual property, said: "Illegal downloading robs our economy of millions of pounds every year and seriously damages business and innovation throughout the UK. "It is something that needs tackling, and we are serious about doing so."

But it left me wondering. Why does the music industry persist in saying that every download is a lost sale? If you even think about it, it can't be true. People - even downloaders - only have a finite amount of money. In times gone by, sure, they would have been buying vinyl albums. But if you stopped them downloading, would they troop out to the shops and buy those songs?

What else, I mused, might they be buying? Hmm... young.. like the entertainment industry... ah, how about computer games and DVDs? Thus began a hunt for the figures for UK sales of games and of DVDs and of music to see if there was any consistent relationship between them. And since this was about filesharing, it seemed sensible to analyse it since 1999 - when Napster started and blew up the CD business model.

(It's surprising how hard it was to find these statistics. You'd think someone like ELSPA, the European Leisure Software Publishers' Association, would have them. Nope: instead initially I had to track them via press releases. The BPI, representing British record labels, said that it didn't have numbers going back before 2004, which seemed a bit 1984-ish to me; it turns out the BPI doesn't like to release those figures because it changed the methodology for recording sales in 2004, effectively reducing the number. At least DVD data are easily obtained from the British Video Association and the UK Film Council. Thank you.)

The first clue of where all those downloaders are really spending their money came in searching for games statistics: year after year ELSPA had hailed "a record year". In fact if you look at the graph above, you'll see that games spend has risen dramatically - from £1.18bn in 1999 to £4.03bn in 2008.

Meanwhile music spending (allowing for that * of adjustment in 2004 onwards) has gone from £1.94bn to £1.31bn.

DVD sales and rentals, meanwhile, have nearly doubled, from a total of £1.286bn in 1999 to £2.56bn in 2008.

If we assume that there's roughly the same amount of discretionary spending available (which, even allowing for the credit bubble, should be roughly true; most of the credit went into houses), then it's clear who the culprit is: the games industry. By 2009, the amount spent in games and music is almost exactly the same as 1999 (though note that the music industry changed its methods from 2004).

Yes, downloaders aren't spending money on the music industry, and in that way they are hurting it. But I'd argue that the true volume of "lost" sales is nowhere near the claims made. Assume that music couldn't be copied (as many games can't). I don't think that the volume of music sales would equate to all those downloads. At best, it would be £600m larger.

But the reality is that nowadays, one can choose between a game costing £40 that will last weeks, or a £10 CD with two great tracks and eight dud ones. I think a lot of people are choosing the game - and downloading the two tracks. That's real discretion in spending. It's hurting the music industry, sure. But let's not cloud the argument with false claims about downloads.